New Aisin chief ready to scrap old products

KARIYA, Japan — Kiyotaka Ise, the new president of Aisin Seiki Co., says his top priority for the mammoth Toyota-affiliated auto parts maker is "scrap and build."

Not in the traditional sense of tearing down old factories and opening new ones.

But in a new sense of scrapping old products that are fading away, such as manual transmissions, and developing new ones such as gearboxes with integrated electric motors.

The veteran Toyota Motor Corp. engineer, who led the Lexus luxury brand as well as advanced r&d at Japan's biggest automaker, took the helm in June to jump-start Aisin Seiki's bumpy transition into the new age of software-laden, electrified mobility.

He was picked for the job partly because he shares the sense of crisis fomented by his former boss, Toyota Motor President Akio Toyoda. Toyota owns 24.8 percent of the transmission and brake maker and has been reorganizing group suppliers, including Aisin Seiki and Denso Corp., to tackle new fields such as connectivity, autonomous driving and electrification.

"I don't see such a sense of crisis among the company's employees," Ise said in an interview at Aisin Seiki's global headquarters near Nagoya. "We all need a sense of crisis."

Ise warned that Aisin Seiki is still playing catch-up with rivals on the global stage.

"I believe that we have a significant gap in earning capability," Ise said.

The stakes are especially high for Aisin Seiki. For years, it banked on supplying Toyota such mainstay automotive hardware as transmissions, brakes and powertrain components. Last year, it even posted record profit and revenue.

But Aisin Seiki knows times are changing.

Uncertainty looms partly because of Toyota's plans to phase out traditional internal combustion engines through 2050 as part of a push to slash emissions. Ise cited Eastman Kodak Co. as a cautionary tale. Once the world's largest photographic film maker, Kodak was forced into bankruptcy in 2012 because it did not adapt quickly enough to the advent of digital cameras.

Aisin Seiki likewise needs structural reform "in order to survive," Ise said. "We must start during the good times because structural reform is something that requires time."

Electrification poses the single biggest threat, Ise said. That is why he plans a shake-up.

"Scrap and build will be one policy that we take on," Ise said. "If the product does not have a good future, then it will be a candidate for scrapping."

Aisin Seiki is reviewing its product lines. And manual transmissions are on the chopping block, he said. Indeed, Aisin Seiki consolidated its Japanese production of manual transmissions to create factory space for more automatic gearboxes.

"The objective is to free up key resources and focus them on more important areas," he said.

Expanding Aisin Seiki's 17 percent global market share in automatic transmissions will be a key focus. The supplier seeks to boost global capacity for automatic gearboxes to 13.2 million units a year in the fiscal year ending March 31, 2020, from 9.8 million in the year ended March 31, 2017. That will be driven by expansions in China, Europe and Japan.

Even as automakers electrify vehicles, Ise said, Aisin Seiki can use its core business in tooth-geared and continuously variable transmissions through at least 2030 by developing new powertrain products that mate those technologies with electric motors.

Thus, Aisin Seiki is also working on several new offerings:

An electric drive control unit for battery and fuel cell vehicles.

An eAxle that provides electrified all-wheel drive in hybrid and electric vehicles.

A cost-competitive one-motor hybrid transmission for large hybrids.

Aisin Seiki is also considering a new mild-hybrid automatic transmission that combines a traditional transmission with a 48-volt battery setup through belts, alternators and starters.

The company is prepping the one-motor hybrid transmission for mass production, Ise said. That gearbox will be delivered first to an automaker outside Toyota Group, helping diversify sales. Toyota Group accounts for a lopsided 58 percent of Aisin Seiki's revenue.

Ise declined to name the carmaker. But he said cultivating a wider customer base is important because it will also pressure Aisin Seiki to develop more competitive products.

Another priority area will be advanced body products such as power sliding doors.

Aisin Seiki has 60 percent of the global market for power sliding doors, Ise said, adding that demand for such products is expected to explode in China.

It also plans to invest in new fields, such as control systems for autonomous driving. It wants to tap its expertise in suspensions and braking to develop such technologies.

Ise sees further potential in driver monitoring systems and automatic parking assist packages. The company was the first to deliver an automatic parking system, supplying it to Toyota.

Aisin Seiki ranks No. 6 on Automotive News' list of top 100 global suppliers with worldwide parts sales to automakers of $33.84 billion in 2017. But Ise knowns even a behemoth such as Aisin Seiki can't tackle all the challenges of the changing industry by itself.

This year, it joined Toyota Motor and fellow Toyota Group supplier Denso to invest $2.8 billion in a new joint venture company that will produce the software needed to run self-driving cars. Toyota holds a 90 percent stake in the company, Toyota Research Institute-Advanced Development, while Aisin Seiki and Denso own 5 percent apiece.

In August, Aisin Seiki partnered with three other Toyota Group suppliers — Denso, steering company JTEKT, and brake supplier Advics — to create another joint venture focused on developing the integrated electronic control unit software for autonomous driving.

The ECU microchip will manage the integration of sensors, brakes and steering.

Aisin formed a separate partnership with Denso to develop and sell the control modules for electrified driving. The systems package transaxles, motor generators and inverters.

Meanwhile, Aisin Seiki has joined the ranks of automotive companies seeking partners through its own venture fund. Aisin Seiki established the $50 million fund with U.S.-based Fenox Venture Capital to pick cutting-edge high-tech hopefuls from Silicon Valley.

"The competition is becoming fierce. This is in terms of electrification, autonomous driving and connected cars." Ise said.

"And we shouldn't only focus on competition from within the automotive industry but also on companies coming from the IT and home appliance industries."